Report on Aqueduct racino deal goes to prosecutors

ALBANY -- New York's inspector general said Thursday that top state legislative leaders and the governor's office angled for campaign contributions and political advantage when they awarded a lucrative video slot machine contract for Aqueduct racetrack to a consortium that was later disqualified.

The report was referred to the U.S. Attorney's Office and the Manhattan District Attorney's Office.

Inspector General Joseph Fisch said the selection in January of Aqueduct Entertainment Group by Gov. David Paterson, Senate Democratic Conference leader John Sampson and Assembly Speaker Sheldon Silver followed a process that removed lobbying restrictions and let campaign cash flow to decision makers.

"Unfortunately and shamefully, consideration of what was in the public's best interest, rather than the political interest of the decision makers, was a matter of militant indifference to them," Fisch said. Federal prosecutors were already looking into it, he said.

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Democrats are less than two weeks away from trying to protect their one-vote majority in the Senate, won two years ago on a promise to reform Albany.

"This has the potential to shift the dynamic of state Senate control," said Steven Greenberg of the Siena College poll now tracking Senate battles.

According to the report, Senate leaders leaked an internal memo containing competitors' bid information to AEG, originally a low-ranked bidder, helping it move up. An assistant to Senate Secretary Angelo Aponte e-mailed the memo to AEG consultant Hank Sheinkopf and Aponte, when questioned, claimed not to recall why that was done. Sheinkopf invoked his Fifth Amendment right against self-incrimination in declining to answer.

The report also questioned statements under oath by several officials, including Sampson, Aponte and Adams, who also pushed for AEG's selection. It describes some statements, in light of other information, as "straining credulity."

"It's tough as hell to make a perjury case," Fisch said. "I think it warrants an effort."

Sampson said he will continue an internal review that already led to recommendations for a lobbyist ban, prelicensing of bidders and other steps. "Mistakes were made at various levels of government and we must collectively learn a lesson," he said.

Adams' spokesman David Lichtash said the senator was reviewing the report and will comment later.

Silver and Smith didn't immediately respond to requests for comment.

While Smith said he recused himself from the bidding process because of his personal relationship with the Rev. Floyd Flake -- a minor AEG stakeholder -- evidence showed Smith continued to advocate for AEG, according to the report. Also, it said Sampson likely pressured AEG to include in the deal a particular contractor he knew before signing off on it.

Silver failed to veto AEG's selection though he knew it was poor, and instead created "poison pill" conditions on its contract that further delayed the process and cost the state time and money, Fisch said.

The state Lottery Division subsequently concluded it couldn't issue a state gaming license to AEG. Application problems included a changing list of participants, with some dropped only after reviewers discovered they were ineligible for a gaming license.

Fisch said that Paterson's office ignored expert advice from the state budget director and Lottery Division urging the governor ignore AEG's bid because of debt and licensing issues. The report faulted Paterson's top staff, counsel Peter Kiernan and secretary Lawrence Schwartz, for failing to heed that advice. Also, Paterson met with Flake seeking his support in a run for governor, three days after AEG's selection, but investigators found no evidence of any quid pro quo.

Paterson spokesman Morgan Hook said they were reviewing the report, but added it was "indisputable" Paterson subsequently refashioned the selection process, leading to a new contractor who will likely be breaking ground next week after years of delay.

Fisch said the special law enacted in 2008, establishing a separate selection process for this contract without normal restrictions on procurement lobbying, was the "root cause" of the trouble.

Investigators estimate $1.2 million was spent on racino lobbyists from March 2009 to February 2010, including $500,000 by AEG.

They cited more than $100,000 in campaign contributions by bidders and associates to the legislative leaders and the governor and their allies during bidding. Fisch, who recused himself from the investigation until the final report was drafted because he is a Paterson appointee, said they couldn't tell if all money was directly related to trying to win probably "the most lucrative revenue contract" New York ever awarded, expected to generate billions of dollars to both the winner and the state over 30 years.

The division held another round of bidding following normal procurement rules, which led to the award in September of a contract to Genting New York LLC, offshoot of Malaysian company, to build and operate 4,525 of the machines at the thoroughbred track in Queens.